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Mba/540 – Maximizing Shareholder Wealth Essay

1934 words - 8 pages

Problem Solution PAGE \* MERGEFORMAT 9
Running head: MERGER-SHANG-WA ELECTRONICSProblem SolutionTabitha W. PurifoyUniversity of PhoenixWeek Six - November 3, 2008MBA/540 - Maximizing Shareholder WealthBill StokesBased on the scenario for Lester Electronics, Inc. we determined the company is heading in a new direction. Implementing the new vision began with the decision to merge LEI and Shang-Wa and will trickle down to employees to increase sales. While opposition is not an issue for the companies, a hostile takeover threat could conquer the efforts of merger completion. Efficient financing options will enable the new consolidated company to explore all avenues logically feasible and proceed to initiate the required steps. The overall outcome will be beneficial to the company, the employees and the shareholders.Issue and Opportunity IdentificationLester Electronics (LEI) has been the sole distributor of capacitors for the consumer and industrial products manufactured by Shang-Wa. LEI never marketed this product outside the United States and managed to achieve and maintain annual revenue of $500 million. Shang-Wa allows LEI to renew this contract annually with the stipulation of purchasing $1 million wholesale for 65 years.This agreement works well for both companies until recently when an offer was made by a competitor called Transnational Electronics Corporation interested in acquiring LEI. Due to growing demand Shang-Wa realizes more work is required although Mr. Lin is reaching his peak and prepares for retirement. In order to walk away from his company; Mr. Lin wants to ensure LEI is able to purchase this company and continue the growth opportunities currently in place.LEI has decided to merge with Shang-Wa, as a stable and profitable company this merger will give Shang-Wa the finances required to remain competitive. One financing problem presented is the rate of growth for LEI compared to Shang-Wa, a basic rule to acquisition evaluation is to ensure NPV to shareholders is positive. Mergers do not always transpire amicably; in this paper I will show how LEI and Shang-Wa moving full force with this merger. An immediate challenge of this merger is ensuring the occurrence completes prior to a hostile takeover. This is an important opportunity for both companies to achieve their desired results. In an effort to gain the backing of the shareholders is to purchase the firms common stock in exchange for cash, shares of stock and other securities'. (Ross-Westerfield, Jaffe, 2004, p 797). LEI will be required to move quickly and efficiently to avoid a hostile takeover which could involve a tender offering to the shareholders. LEI can purchase the assets of Shang-Wa as one way to avoid potential conflicts with the company shareholders. This alternative would not be a likely choice because it could become more costly and take much more time to accomplish in order to get clear title to all assets; in light of the other suitors in the case.If LEI was...

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